Multinationals at a crossroads: Adapting to a new geopolitical era

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CEOs of MNCs are frequently asking how to reimagine their operating models for the future. While answers vary based on the nature of each business and where it is headquartered, one truth spans all scenarios: The MNC model will need to move beyond enabling growth and efficiency to also embedding the adaptability to capture opportunities and the resilience to withstand geopolitical shocks.

Successful MNC leaders will increasingly make business decisions informed by the impact of geopolitics on their strategic priorities. In particular, they need to weigh the implications of ten geopolitical factors, most of which increase the complexity of doing business globally supported by formal governance and organizational structures.  Ten geopolitical factors affecting global business are:  Trade; Tariff, Domestic Industrial Policies; Domestic Environmental, Labor, and Immigration Policies; Export, Import, and Capital Controls; Foreign Investment Restrictions; Sanctions; Technology, Data, Intellectual Property and Cyber Controls; and Conflicts and Multilateral Security Agreements.

These geopolitical factors will have varied, and sometimes contradictory, implications for multinational companies. Some, including export controls, sanctions, and investment restrictions, may constrain MNCs’ ability to operate globally, limiting their scale and growth prospects. Conflicts and tariffs may affect their supply chains, causing costly operational disruptions for companies that have not made contingency plans. Other drivers, however—such as domestic industrial supports and trade and security agreements—may create paths for MNCs to expand into new markets and trade corridors and take advantage of significant new investment opportunities or incentives. Critically, these shifts will have a different impact depending on the company’s business and geographic mix, thereby affecting competitors’ relative advantages. MNC leaders should be prepared to both protect their current franchises and propel forward to create value.

As the impact of each geopolitical driver unfolds, new norms will in time take form. In the meantime, MNC leaders should prepare for different scenarios stemming from the geopolitical shifts by exploring three fundamental aspects of their organizations: value at stake, governance structure, and organizational structure.  

Multinational corporations have created significant value for their stakeholders by harnessing the opportunities created in a low-friction global order. As the geopolitical climate changes, so must MNCs’ design. With the right adaptations, global companies can access new opportunities and maintain resilience in the face of shocks. The challenge for their leaders will be making cohesive choices in developing their strategies, governance, and organizational structures in the face of persistent uncertainty.

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